BUSINESS:

Wal-Mart Stores is launching a program to sell $1 billion worth of food from small and mid-sized farms in emerging markets such as China and double its sale of locally sourced fruits and vegetables in the United States.

The plan announced yesterday expands a broader initiative by the Bentonville, Arkansas-based retail behemoth to boost energy efficiency, cut waste, use more renewable energy to power its stores and force suppliers to adopt sustainable practices. Extending the five-year-old sustainability project to agriculture responds to concerns that Wal-Mart's reliance on industrial farms displaces local farmers and contributes to unsustainable global food production.

Wal-Mart also aims to take another slice out of costs and energy use tied to shipping products across borders. Tomatoes grown on an Arkansas farm and sold to an Arkansas Wal-Mart, for example, slashes both the cost and greenhouse gas emissions associated with trucking those tomatoes from Florida or Mexico. Waste is also an issue.

"Globally, 30 to 40 percent of food is wasted as it moves from farms to tables. But this can't continue," said Wal-Mart CEO Mike Duke during a morning announcement. "We must produce more and waste less."

Grocery sales are half of Wal-Mart's business, but Duke noted that just four of the company's 39 sustainability goals and benchmarks address food.

Wal-Mart also said it wants to address two contributors to deforestation, the production of palm oil and beef. Wal-Mart said that by 2015 it would require products sold globally to use only "sustainably sourced" palm oil. Doing so only for U.S. and British store brand products would reduce greenhouse gas emissions by 5 million metric tons by 2015, according to the retailer.

Palm oil is found in an assortment of food and cosmetic products. According to the World Wildlife Fund, palm oil use has doubled in the past five years in part because of health concerns about trans fats. That trend has resulted in extensive land clearing in Borneo and Sumatra, among other places, causing loss of habitat and further imperiling fragile ecosystems. Since an estimated 60 percent of deforestation in Brazil's Amazon rainforest is tied to an expansion of cattle ranching, Wal-Mart said it plans to expand globally a practice in Brazil's stores of only selling beef that doesn't contribute to the deforestation.

'Hands on' approach with farm suppliers

"The commitment is ground-breaking," said Matt Guyer, U.S. director of business and industry at the World Wildlife Fund. "Palm oil and beef are going to be tough to tackle, but Wal-Mart is also not going to do it alone."

Guyer, who worked with Wal-Mart to craft a plan for addressing deforestation, said the retailer's supply-chain decisions can steer industrywide changes. The power to change practices so dramatically is concentrated in a relatively small number of companies, he pointed out, noting that 100 companies dominate the production of major global commodities and can, therefore, affect the way business is done globally.

"I was really encouraged to see Wal-Mart take a strong public stance about palm oil," he said. "They've got 200 million consumers going to the store every week. We're really trying to leverage the largest players to really make a difference."

Guyer said Wal-Mart executives he consulted with expressed concern about how the agricultural sustainability program will affect prices. Low prices are Wal-Mart's marketing pitch. But he said they found that food waste and low crop yields are also a long-term threat to prices. "The idea that they can use this as a way to drive efficiency," he said. "It's a way to have real cost savings."

If Wal-Mart follows through on its goals, it would require a far more hands-on approach with both small- and large-scale farmers. The retailer for the first time has pledged to ask suppliers about their use of water, energy, fertilizer and pesticides. The idea is to accelerate a new focus on agriculture in the company's "Sustainability Index," which assesses suppliers' practices in areas such as energy use and efficiency. One of the goals is to cut food waste 15 percent in emerging markets by 2015 and 10 percent in more advanced markets.

Wal-Mart established country-specific commitments through 2015. The goal in India is to source 50 percent of its fresh produce through a "direct farm" program, which is designed to help local farmers place their products in nearby Wal-Mart stores and get a fair return. China's direct farm program is also planning an upgrade to integrate more organic produce. In Japan, Wal-Mart says it will cut in-store waste 35 percent. In Canada, where Wal-Mart's grocery stores are still getting a foothold, the retailer plans to source 30 percent of its produce from local farmers.

Largest consumer of U.S. agriculture targets waste

Wal-Mart stores in the United States, the largest customer of American agriculture, plan to double the percentage of locally grown produce to 9 percent. The term "locally grown" means fruits and vegetables sold in the same state.

In emerging markets such as China, Wal-Mart says it wants to reach out to as many as 1 million small farmers, including training them to farm in a sustainable way. The goal is to raise the income of those farmers by 10 or 15 percent.

Aron Cramer, president of Business for Social Responsibility, a San Francisco-based consulting and research firm focusing on sustainability, said agriculture has been an elusive area for companies with vast supply chains. Farmers often work through cooperatives that can be hard to move in a single direction.

"There's a lot of capacity-building for small agricultural suppliers to address some of the issues we're talking about," he said.

Cramer maintains that Wal-Mart has a track record of working hard to accomplish its goals. As long it does so in this case and it's a transparent process, then Wal-Mart will make a difference.

"The sustainability index is still a work in progress," Cramer said. "The fact is that we waste an immense amount of food in the United States and Europe. Very few companies have taken on that issue as squarely as Wal-Mart has."

What it actually accomplishes and the symbolic importance of the company's capacity-building initiative for sustainable agriculture is critical, he said.

"It tends to set de facto standards," Cramer said. "More companies are more willing to set quantitative targets on waste or energy. It sets the bar higher and does so publicly."

Cramer said food waste has a direct tie to reducing carbon emissions and other pollutants. If one-third of produce and meat is thrown out by consumers, he said, energy is used to grow, distribute and dispose of food that serves no purpose.

"Local sourcing and reducing waste will both have a meaningful impact on the energy used to feed people," he said.

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